Reimbursement Strategy for Companion Diagnostics


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Summary of reimbursement issues and related business strategy concerns for commercialization of companion diagnostics

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Reimbursement Strategy for Companion Diagnostics

  1. 1. Reimbursement Strategy for Companion Diagnostics: Emerging Models and Requirements Edward E. Berger, Ph.D. Larchmont Strategic Advisors
  2. 2. Definition Companion diagnostic – A diagnostic test used to predict the likely clinical effectiveness and/or safety of a particular therapeutic intervention for a specific individual; the term is most often used to describe a molecular diagnostic test that stratifies a patient population with regard to the likelihood of response to, or the safety of, a pharmacologic therapy.
  3. 3. An Ongoing Medical Revolution <ul><li>Personalized medicine </li></ul><ul><ul><li>The right Tx </li></ul></ul><ul><ul><li>For the right patient </li></ul></ul><ul><ul><li>In the right amount </li></ul></ul><ul><ul><li>At the right time </li></ul></ul><ul><li>Proteomics and Pharmacogenomics are critical enabling technologies </li></ul><ul><li>Dx is the key to success </li></ul>
  4. 4. Limits of Traditional Medicine <ul><li>Tx success is frequently probabilistic </li></ul><ul><ul><li>Protocols based on population-wide data </li></ul></ul><ul><ul><li>Non-response rates are high </li></ul></ul><ul><ul><li>Complication rates are high </li></ul></ul><ul><ul><li>Determinants of success are poorly known </li></ul></ul><ul><li>Informed guessing yields </li></ul><ul><ul><li>Delays in identifying effective Tx </li></ul></ul><ul><ul><li>Exposure to unnecessary risks </li></ul></ul><ul><ul><li>Enormous financial, time and opportunity costs </li></ul></ul>
  5. 5. Low Response Rates to Rx Do higher response rates yield more complications?
  6. 6. Drug Developers Have A Parallel Problem <ul><li>Lengthy and expensive product development process </li></ul><ul><ul><li>Size and duration of clinical trials is a major factor </li></ul></ul><ul><li>Painfully low yield rate on compounds screened </li></ul><ul><li>High failure rate in clinical trials </li></ul><ul><li>Phase IV (and beyond) safety issues </li></ul>
  7. 7. Companion Diagnostics <ul><li>Can yield substantial improvements in clinical care </li></ul><ul><li>Promise major efficiencies and savings in drug development </li></ul><ul><li>Contribute to more effective and efficient use of society’s investment in health care </li></ul>
  8. 8. In the Clinic … <ul><li>Stratify patient population on the basis of validated indicators of Tx/Rx effectiveness and/or safety </li></ul><ul><ul><li>Increase Rx response rates </li></ul></ul><ul><ul><li>Decrease Tx complication rates </li></ul></ul><ul><li>Better and safer Tx targeted to the individual patient </li></ul><ul><li>Less time and money wasted </li></ul>
  9. 9. In Drug Development … <ul><li>Targeted screening of compounds allows better choices for clinical development </li></ul><ul><li>Ability to recruit patients who are likely responders yields smaller clinical trials with higher probability of success </li></ul><ul><li>Economics of drug development transformed </li></ul><ul><ul><li>Development time and cost reduced </li></ul></ul><ul><ul><li>Blockbuster model severely threatened </li></ul></ul>
  10. 10. For Society … <ul><li>Targeted Tx selection means higher return on health care investment </li></ul><ul><ul><li>Less ineffective or unnecessary care </li></ul></ul><ul><ul><li>Fewer complications and adverse events </li></ul></ul><ul><ul><li>Healthier population </li></ul></ul><ul><ul><li>Lower health insurance costs? </li></ul></ul><ul><ul><li>Reduced opportunity costs </li></ul></ul><ul><ul><li>Control of health care share of GDP? </li></ul></ul>
  11. 11. Success Ought to Follow <ul><li>All affected parties seem to benefit </li></ul><ul><li>No obvious major structural impediments </li></ul><ul><li>No powerful adversaries </li></ul>
  12. 12. Many Positive Signs <ul><li>Technology platform is real and rapidly developing </li></ul><ul><li>Drug and diagnostics companies are deeply engaged </li></ul><ul><li>Venture capital is being invested (Dx) </li></ul><ul><li>Various business models are being tried </li></ul><ul><li>Regulatory agency (FDA) is on board </li></ul><ul><li>“ Buzz” is positive and growing </li></ul>
  13. 13. DHHS Is Supportive <ul><li>Secretary’s Advisory Committee on Genetics, Health and Society </li></ul><ul><ul><li> </li></ul></ul><ul><li>Dedicated website </li></ul><ul><ul><li> </li></ul></ul><ul><li>“ Personalized Health Care: Opportunities, Pathways, Resources”, Sept. 2007 </li></ul><ul><ul><li> </li></ul></ul>
  14. 14. FDA Programmatic Activities <ul><li>Critical path initiative </li></ul><ul><li>Adaptive clinical trials </li></ul><ul><li>Guidance for industry </li></ul><ul><ul><li>Pharmacogenomic Data Submissions, 2005 </li></ul></ul><ul><ul><li>Drug-Diagnostic Co-Development Concept Paper, 2005 </li></ul></ul><ul><li>“ Table of Valid Genomic Biomarkers” </li></ul><ul><ul><li> </li></ul></ul>
  15. 15. Significant Rate-Limiting Factors <ul><li>Regulatory pathway and standards need to be refined, optimized </li></ul><ul><li>Clinicians and regulators need to be educated and recruited into a new model of Tx and Rx selection </li></ul><ul><li>Payers need to provide coverage and adequate payment for stratifying Dx </li></ul><ul><ul><li>New decision making paradigms needed? </li></ul></ul>
  16. 16. CHICKEN / EGG PROBLEM <ul><li>Industry blames slow progress on lack of clearly defined regulatory pathway, criteria and guidance </li></ul><ul><li>FDA typically develops guidance documents through case accretion </li></ul><ul><ul><li>generalizing from and codifying early experience </li></ul></ul><ul><li>Industry is stepping up demands for clearer FDA leadership </li></ul>
  17. 17. Private Payer Coverage Status <ul><li>Generally aware of pharmacogenomic developments </li></ul><ul><ul><li>Coverage for Dx/Rx pairs is case-by-case </li></ul></ul><ul><ul><li>Traditional decision criteria have worked so far </li></ul></ul><ul><ul><li>Limited experience  no commitment to a model </li></ul></ul><ul><ul><li>Critical mass not yet reached </li></ul></ul><ul><li>Some PBMs understand the issues well </li></ul><ul><ul><li>Uniquely positioned to evaluate and manage the financial benefits of companions </li></ul></ul><ul><ul><li>Report more receptivity from self-insured employers than from third party insurers </li></ul></ul>
  18. 18. Critical Mass Not Yet Achieved <ul><li>Small # of established Dx/Rx pairs in clinic </li></ul><ul><ul><li>HER2  Herceptin </li></ul></ul><ul><ul><li>CYP2C9/VKORC1  Warfarin </li></ul></ul><ul><ul><li>CYP2D6  Tamoxifen </li></ul></ul><ul><ul><li>EGFR  Erbitux </li></ul></ul><ul><ul><li>And just a few more </li></ul></ul><ul><li>More in pipeline, but accretion rate is disappointing to many </li></ul>
  19. 19. Where is Medicare? <ul><li>Little knowledge and no planned action </li></ul><ul><ul><li>Full plate re: traditional therapies </li></ul></ul><ul><ul><li>Staff and other resource constraints </li></ul></ul><ul><li>General perception of a looming issue </li></ul><ul><ul><li>Open to education process </li></ul></ul><ul><li>Lagging private insurers in issuing case-specific coverage policies </li></ul><ul><ul><li>Need a compelling first move (Warfarin?) </li></ul></ul><ul><ul><li>Will use traditional criteria by default </li></ul></ul>
  20. 20. Priorities for Gaining Coverage <ul><li>Understand the traditional coverage criteria </li></ul><ul><li>Integrate reimbursement planning into clinical development plan </li></ul><ul><ul><li>Leverage FDA process and outcome </li></ul></ul><ul><li>Recognize the primacy of the therapeutic goal </li></ul><ul><ul><li>Focus on clinical utility of Dx </li></ul></ul><ul><ul><li>Lock utilization into labeling </li></ul></ul>
  21. 21. TEC* Coverage Criteria <ul><li>Final regulatory body approval </li></ul><ul><li>Scientific evidence permits conclusions re: effect on health outcomes </li></ul><ul><li>Improves net health outcomes </li></ul><ul><li>As beneficial as any established alternatives </li></ul><ul><li>Improvement attainable outside the investigational setting </li></ul>* Blue Cross Blue Shield Technology Evaluation Center
  22. 22. TEC Review is Rigorous <ul><li>Requires peer-reviewed journal publications </li></ul><ul><li>High premium on randomized double-blinded trial design </li></ul><ul><li>Results are advisory to regional Blue Cross Blue Shield plans </li></ul><ul><ul><li>Formal agreement with Kaiser Permanente </li></ul></ul><ul><li>Availability via Website means smaller insurers have free access </li></ul><ul><ul><li> </li></ul></ul>
  23. 23. CMS Coverage Criteria <ul><li>Reasonable and necessary standard </li></ul><ul><li>Based on review of the relevant clinical evidence </li></ul><ul><ul><li>Quality of individual studies </li></ul></ul><ul><ul><li>Generalizability of findings to the Medicare population </li></ul></ul><ul><ul><li>Overarching conclusions re: direction and magnitude of potential risks and benefits </li></ul></ul>
  24. 24. CMS Hierarchy of Trial Designs <ul><li>Randomized controlled trials </li></ul><ul><li>Non-randomized controlled trials </li></ul><ul><li>Prospective cohort studies </li></ul><ul><li>Retrospective case-control studies </li></ul><ul><li>Cross-sectional studies </li></ul><ul><li>Surveillance studies </li></ul><ul><li>Consecutive case series </li></ul><ul><li>Single case reports </li></ul>
  25. 25. CMS Considers Multiple Inputs <ul><li>Staff analyses </li></ul><ul><li>Contracted analyses </li></ul><ul><li>External technology assessments </li></ul><ul><ul><li>E.g. TEC, ECRI, </li></ul></ul><ul><li>Position statements by relevant groups </li></ul><ul><li>Expert opinion </li></ul><ul><li>Public comments </li></ul>
  26. 26. Leverage FDA Process For … <ul><li>Unequivocal confirmation of biomarker validity – both analytic and clinical </li></ul><ul><li>Demonstration of objective basis for stratification of patient population </li></ul><ul><li>Empirical evidence of clinical utility </li></ul><ul><ul><li>link between Dx status and Tx success </li></ul></ul><ul><ul><li>Minimization of probabilistic element </li></ul></ul><ul><li>Dx/Rx tied by label indications </li></ul>
  27. 27. FDA Process Design (1) Biomarker Development
  28. 28. FDA Process Design (2) Dx-Rx Co-Development
  29. 29. Co-Development Works Best <ul><li>Dx and Rx tied intimately from first step </li></ul><ul><ul><li>Increased likelihood of Rx success </li></ul></ul><ul><ul><li>Success linked empirically to Dx status </li></ul></ul><ul><ul><ul><li>Single unified clinical plan </li></ul></ul></ul><ul><ul><li>Coverage decision for Rx is straightforward </li></ul></ul><ul><ul><ul><li>Demonstrated clinical utility in population defined by Dx </li></ul></ul></ul><ul><ul><li>Coverage of Rx demands coverage of Dx </li></ul></ul>
  30. 30. Other Scenarios Raise Problems <ul><li>Dx development w/out Rx </li></ul><ul><ul><li>Payers will not cover a biomarker test until there is demonstrated clinical utility </li></ul></ul><ul><ul><li>Development is for drug discovery market only </li></ul></ul><ul><li>Dx development for established Rx </li></ul><ul><ul><li>Needs clinical demonstration that stratification improves therapeutic response rate </li></ul></ul><ul><ul><ul><li>Expensive and lengthy clinical trial </li></ul></ul></ul><ul><ul><ul><li>Payers perceive unresolved methodological issues </li></ul></ul></ul><ul><ul><ul><li>Investment may not be justified by potential gains </li></ul></ul></ul>
  31. 31. Payment is Uneven <ul><li>Private insurer payment levels generally perceived as good by genetic testing labs </li></ul><ul><ul><li>Low financial impact due to volume restraint </li></ul></ul><ul><ul><li>Expect price sensitivity as more tests are covered and volumes increase </li></ul></ul><ul><li>Medicare payment is inadequate </li></ul><ul><ul><li>Clinical lab fee schedule frozen until 2010 </li></ul></ul><ul><ul><ul><li>A fraction of 1983 median charges </li></ul></ul></ul><ul><ul><li>Bizarre state-to-state variation for molecular tests </li></ul></ul>
  32. 32. Lab Coding System is Broken <ul><li>Most payments based upon CPT codes </li></ul><ul><li>Molecular diagnostic tests are coded by processes, not by analyte </li></ul><ul><ul><li>A single test may require multiple processes and process repetitions </li></ul></ul><ul><ul><li>Payers are hard-pressed to know what they are paying for </li></ul></ul><ul><ul><li>Ability to perform retrospective analyses is severely limited </li></ul></ul>
  33. 33. Need To Pay For Value <ul><li>Will require agreement and coordination by many independent parties </li></ul><ul><ul><li>AMA controls the CPT coding system </li></ul></ul><ul><ul><li>Congress mandates Medicare Clinical Lab payment methodology </li></ul></ul><ul><ul><li>CMS implements policy, integrates new test codes </li></ul></ul><ul><ul><ul><li>Prescribed rules allow little flexibility </li></ul></ul></ul><ul><li>Can only code a finite number of analytes </li></ul>
  34. 34. If Payment is Inadequate… <ul><li>Dx development cost is a fraction of Rx </li></ul><ul><li>Dx charge is a fraction of Rx charge </li></ul><ul><ul><li>One time vs. long-lasting </li></ul></ul><ul><li>Consider alternatives to Dx fee for service </li></ul><ul><ul><li>If insurer pays for Dx, no charge for Rx nonresponders </li></ul></ul><ul><ul><li>Dx provided w/out charge by pharmaceutical company (absorbed as an overhead) </li></ul></ul><ul><ul><li>Etc. </li></ul></ul>
  35. 35. Conclusions (1) <ul><li>No easy fix for molecular Dx coding system </li></ul><ul><ul><li>Process-based coding for years to come </li></ul></ul><ul><li>No short-term prospect for rational Medicare payment </li></ul><ul><li>Standard coverage analysis principles will apply for now … and for a while more </li></ul><ul><ul><li>Focus on clinical utility </li></ul></ul><ul><ul><li>Quality of clinical data is key </li></ul></ul>
  36. 36. Conclusions (2) <ul><li>Integrate Dx coverage analysis requirements into Rx clinical development plan </li></ul><ul><ul><li>Collect all necessary Dx clinical utility data as part of your Rx clinical trial </li></ul></ul><ul><li>Co-Developed Dx/Rx pairings increase probability of success and reduce total costs </li></ul><ul><ul><li>Other Dx development models are financially problematic </li></ul></ul>
  37. 37. Edward E. Berger, Ph.D. Principal Larchmont Strategic Advisors 2400 Beacon St. #203 Chestnut Hill, MA 02467 Tel: (617)645-8452 Email: [email_address]